The Impact of the Proposed IR35 Legislation

Insight from the Penna Team


22 Jan 2016

Interim, IR35, Public Sector

The Impact of the Proposed IR35 Legislation

In August, I wrote an article for the MJ about the potential impact to public sector organisations and interim managers if the new HMRC ‘off-payroll working in the public sector’ IR35 legislation proceeds. I also wrote an impact paper for the LGA to send to their members, and a briefing note that was left with Government Ministers. We at Penna (and the whole recruitment industry) are doing as much as we can to lobby against the changes but also to ensure the sector is aware of the changes so that everyone can prepare for what’s ahead.

To give a bit of background… essentially HMRC want to tackle what they see as non-compliance of IR35 legislation, which they say, cost the Exchequer £440m last year. (this figure has been disputed!)

In order to achieve this, they propose to make a number of changes to IR35 – the headlines being that from April 1st 2017, it will no longer be the interim manager who will determine if their assignment is inside IR35, but down to the public sector body, or recruitment business who engages the interim by using a rather complicated and convoluted new online tool. If your assignment falls within IR35, you will be taxed at PAYE levels.

The new rules will also move the associated tax liability from the PSC to the public sector end client or recruitment business. Basically, whether you contract with the client directly or through a recruiter, your day rate will now be taxed at source at the level determined by the online tool before you are paid.

There are a number of other implications for interim managers and the organisations who hire them should this legislation go ahead, so do look for the consultation online if you haven’t read it yet, or drop me a line and I will email you my briefing paper.

We need to assume this legislation will go ahead. So you need to start thinking about what this will mean for you. Talk to your accountant. Think about whether your day rate will have to increase. Will you still want to be an interim manager in the public sector?

Your recruitment consultants will have to ask you for very detailed information to complete the online test for every assignment. The processes to get you on the client site will now take longer – compliance will become more stringent. Assignment briefs will have to be very clear – the days of the 2 line job brief will be over! Clients will need to think carefully about what they want the interim to achieve.

Taken in the round, and considering the backdrop of significant transformation in the public sector, this could end up being a government own goal. And with any luck, they may feel that Brexit is a bigger headache to deal with and these changes may get stalled.

We are expecting an update from HMRC at the end of October, and certainly an announcement in the Autumn statement. We will keep you updated as things become clearer, but in the meantime, feel free to talk to us if you have any questions.

Toni Hall is an Associate Director at Penna -